State Penalizes HMO for Fraud in Its Marketing

In a rare crackdown on Medi-Cal marketing fraud, a state agency has barred a Southland health maintenance organization from enrolling any new Medi-Cal patients or opening new facilities because of evidence it offered doctors a “bounty” for every patient they enrolled in its program.

The HMO is Signal Hill-based Universal Care, which serves 80,000 Medi-Cal recipients in Los Angeles, Orange and San Bernardino counties. Universal stands to become a leading player in the Medi-Cal market in Los Angeles County as a subcontractor for Foundation Health, a large full-service HMO that has received a major county health care contract.

In Orange County, about half of the plan’s membership of 50,000 residents are Medi-Cal recipients, said Jeff Davis, the company’s chief operating officer. Davis said that the company contracts directly here with the countywide managed care program for Medi-Cal recipients, called Cal-OPTIMA.

The plan owns six medical groups that employ about 50 physicians and operate clinics in Anaheim, Garden Grove, Santa Ana and Orange. It separately contracts with 750 primary physicians and 2,500 specialists.

It also operates dental offices in Garden Grove, Santa Ana and Anaheim that employ three dentists.

In a letter dated March 20 and obtained Friday by The Times, however, the state Department of Health Services alleges that Universal officials offered a San Diego-area medical group an illegal fee of $25 for each Medi-Cal patient the group’s doctors enrolled in a Universal plan.

The offer was made by letter March 5, the department said, although it had specifically warned Universal officials Dec. 5 that paying doctors such fees is illegal.

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Department officials also said they had evidence that the firm’s salesmen had offered Medi-Cal enrollees direct financial inducements for signing up. The state agency said it had referred four of those agents to the Long Beach city attorney’s office for criminal prosecution on misdemeanor counts; their cases are pending.

Consumer advocates say such sales practices prey upon poor people who may be enticed to sign up with private health plans that might not offer them the most appropriate range or quality of services. That is a problem likely to become more acute as the Wilson administration moves roughly 2 million Medi-Cal patients into managed-care health plans like Universal.

Medi-Cal advocacy groups have long urged the Department of Health Services to take a harder line on allegations of enrollment and marketing fraud, which they say are widespread. Advocates and department officials alike say the agency’s move against Universal is among the sternest it has taken against a Medi-Cal plan in recent memory.

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According to its letter, the agency withdrew its approval of Universal’s Medi-Cal marketing plan and barred it from signing up new patients as of March 21. The agency said it would not authorize Universal’s expansion into new counties or allow it to open any new clinics, pending completion of an ongoing investigation.

An agency official said its sanctions would stand indefinitely, until its probe of Universal’s marketing practices throughout the Southland ends. He could not say how long the investigation would take but said the agency reserved the right to impose further sanctions, including revocation of Universal’s Medi-Cal contract, if they are deemed appropriate. Universal may continue to service existing patients at its network of clinics and other facilities.

The agency’s move comes against the backdrop of numerous complaints about Universal’s marketing practices. These include pending court allegations that its marketing representatives have offered Medi-Cal recipients cash, alcohol and drugs.

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Last November, a Times reporter witnessed an encounter in which a Universal salesman offered a Medi-Cal patient $20 in cash to sign her benefits over to the private company.

Universal on Friday called the agency’s actions “precipitous and inherently damaging” to the company and said the firm had scheduled a meeting Tuesday with agency officials to protest the sanctions. The firm said it has “always maintained a policy of zero tolerance concerning any questionable marketing practices.”

As for the San Diego incentive program at the heart of the state agency’s allegations, Howard E. Davis, the firm’s sole shareholder, president and chief executive officer, said in a statement that Universal never implemented the program. He said the offer was withdrawn as soon as the firm learned that it was “not endorsed by DHS.”

Davis also said that Universal had suspended two of the four salesmen charged with marketing abuses when it learned they were being investigated. A third had already been laid off “for unrelated reasons,” and the company suspended the fourth after it learned of the criminal charges against him.

In defending the agency’s swift imposition of sanctions, Kenneth J. Wagstaff, chief of its expansion and operations branch, noted: “The Medi-Cal population has choices [among health plans]. If there are efforts to manipulate that choice, we have to take immediate action.”

Wagstaff said the Universal case was “the first time in my memory that the department received specific evidence that there was an effective bounty [being paid] for patients.”

Times staff writers Julie Marquis in Orange County and David R. Olmos in Los Angeles contributed to this report.